|9 Months Ended|
Sep. 30, 2017
|Related Party Transactions [Abstract]|
Wafer Supply Agreement. The Wafer Supply Agreement (WSA) governs the terms by which the Company purchases products manufactured by GLOBALFOUNDRIES Inc. (GF).
Sixth Amendment to Wafer Supply Agreement. On August 30, 2016, the Company entered into a sixth amendment to the WSA (the WSA Sixth Amendment). The WSA Sixth Amendment modified certain terms of the WSA applicable to wafers for the Company’s microprocessor, graphics processor and semi-custom products for a five-year period from January 1, 2016 to December 31, 2020. The Company and GF also agreed to establish a comprehensive framework for technology collaboration for the 7nm technology node.
The WSA Sixth Amendment also provides the Company a limited waiver with rights to contract with another wafer foundry with respect to certain products in the 14nm and 7nm technology nodes and gives the Company greater flexibility in sourcing foundry services across its product portfolio. In consideration for these rights, the Company agreed to pay GF $100 million in installments starting in the fourth fiscal quarter of 2016 through the third fiscal quarter of 2017. During the third fiscal quarter of 2017, the Company paid GF $25 million and, as of September 30, 2017, the Company had paid GF $100 million in aggregate. Starting in 2017 and continuing through 2020, the Company also agreed to make quarterly payments to GF based on the volume of certain wafers purchased from another wafer foundry.
Further, for each calendar year during the term of the WSA Sixth Amendment, the Company and GF agreed to annual wafer purchase targets that increase from 2016 through 2020. If the Company does not meet the annual wafer purchase target for any calendar year, the Company will be required to pay to GF a portion of the difference between the Company’s actual wafer purchases and the wafer purchase target for that year. The annual targets were established based on the Company’s business and market expectations and took into account the limited waiver it received for certain products. As of September 30, 2017, the Company expects to meet its 2017 wafer purchase target.
The Company and GF also agreed on fixed pricing for wafers purchased during 2016 and established a framework to agree on annual wafer pricing for the years 2017 to 2020. The Company and GF have agreed on pricing for wafer purchases for 2017.
The Company’s total purchases from GF related to wafer manufacturing, research and development activities and other for the quarters ended September 30, 2017 and September 24, 2016 were $331 million and $186 million, respectively. The Company’s total purchases from GF related to wafer manufacturing, research and development activities and other for the nine months ended September 30, 2017 and September 24, 2016 were $773 million and $479 million, respectively. Included in the total purchases for the quarter and nine months ended September 30, 2017 are amounts related to the volume of certain wafers purchased from another wafer foundry, as agreed to by the Company and GF under the WSA Sixth Amendment. As of September 30, 2017 and December 31, 2016, the amount of prepayment and other receivables related to GF was $20 million and $32 million, respectively, included in Prepayment and other receivables - related parties on the Company's condensed consolidated balance sheets. As of September 30, 2017 and December 31, 2016, the amount of payable to GF was $270 million and $255 million, respectively, included in Payables to related parties on the Company's condensed consolidated balance sheets.
Warrant Agreement. Also on August 30, 2016, in consideration for the limited waiver and rights under the WSA Sixth Amendment, the Company entered into a warrant agreement (the Warrant Agreement) with West Coast Hitech L.P. (WCH), a wholly-owned subsidiary of Mubadala Development Company PJSC (Mubadala). Under the Warrant Agreement, WCH and its permitted assigns are entitled to purchase 75 million shares of the Company’s common stock (the Warrant Shares) at a purchase price of $5.98 per share. The warrant is exercisable in whole or in part until February 29, 2020. Notwithstanding the foregoing, the Warrant Agreement will only be exercisable to the extent that Mubadala does not beneficially own, either directly through any other entities directly and indirectly owned by Mubadala or its subsidiaries, an aggregate of more than 19.99% of the Company’s outstanding capital stock after any such exercise.
GF continues to be a related party of the Company because Mubadala and Mubadala Technology Investments LLC (Mubadala Tech, a party to the WSA) are affiliated with WCH, a significant stockholder of the Company. GF, WCH and Mubadala Tech are wholly-owned subsidiaries of Mubadala.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://www.xbrl.org/2003/role/presentationRef